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Canadian regulators release point of sale disclosure framework for funds

TORONTO, June 15 /CNW/ - Canadian regulators took an important step today
on their proposals for providing investors with improved point of sale
disclosure information.
The Joint Forum has released for public comment a "Proposed Framework
81-406; Point of sale disclosure for mutual funds and segregated funds." A key
element of the Proposed Framework is a two-page document called "Fund Facts",
which highlights critical information, including performance, risk and cost.
This information will be presented to investors when they need it most -
before they make a decision to buy a fund.
Copies of the Proposed Framework and accompanying backgrounder are
available from the websites of CCIR (www.ccir-ccrra.org), CSA
(www.csa-acvm.ca) or the Joint Forum (www.jointforum.ca). The Joint Forum
encourages all interested parties to review and comment on the paper. Comments
should be submitted to the Joint Forum Project Office at the address below by
October 15, 2007.
Joint Forum Project Office
Joint Forum of Financial Market Regulators
5160 Yonge St.
Box 85, 17th Floor
North York, ON
M2N 6L9
jointforum@fsco.gov.on.ca
The Joint Forum of Financial Market Regulators (Joint Forum) consists of
representatives from the Canadian Association of Pension Supervisory
Authorities (CAPSA), the Canadian Council of Insurance Regulators (CCIR) and
the Canadian Securities Administrators (CSA). The goal of the Joint Forum is
to continuously improve the financial services regulatory system through
greater harmonization, simplification and co-ordination of regulatory
activities.
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BACKGROUND SUMMARY
PROPOSED FRAMEWORK 81-406; POINT OF SALE DISCLOSURE
FOR MUTUAL FUNDS AND SEGREGATED FUNDS
The current disclosure regime for mutual funds and segregated funds does
not give investors meaningful information when they need it most-before they
make their decision to buy a fund.
The Proposed Framework document describes the elements of the Joint
Forum's proposed point of sale disclosure system, including a new mandatory
fund summary document called Fund Facts, to be delivered to investors before
they buy into a fund, and a new simplified "cooling off" right for an investor
to cancel a purchase. It reflects the ideas of the regulators that are members
of the Joint Forum and its member associations. It does not necessarily
represent the views of any government.
The Joint Forum developed this plain language document format to give
investors the basic information necessary for them to understand the potential
benefits, risks and costs of investing in a fund.
AUDIENCE
The primary audience for mutual funds and segregated funds disclosure is
adult Canadians who have money to invest.
To connect with this audience, the point of sale disclosure document was
written according to the following principles:
- Avoid legal or financial jargon.
- Use simple examples, tables and graphics to illustrate concepts.
- Use bold headings and white space to make the document easier to read
and navigate.
- Write at a Flesch-Kincaid grade level of 5.0.
- Recognize the role of the adviser in the sales process.
CONTENT
The central document in the disclosure system is the Fund Facts, which
highlights key information that is important to investors. The information in
the Fund Facts fits on both sides of one page and is organized in a way that
makes sense to investors. It uses a question-and-answer format that makes it
easy for investors to find information. It contains statements that help
investors understand the risks of investing in a fund.
WHEN FUND FACTS MUST BE DELIVERED
Dealers and insurers will have to deliver the Fund Facts for:
- initial purchases
- subsequent purchases, except for pre-authorized payment plan purchases
- switches, except for switches under asset allocation services
For segregated funds, the initial purchase takes place when an investor
signs the application for the insurance contract and selects one or more
funds.
We propose that investors will not have the option to waive receipt of the
Fund Facts.
DELIVERY OF FUND FACTS
We propose that Fund Facts be directly delivered to each investor by hand,
fax, mail, or electronically.
It would not be sufficient to make the information available on the
internet and leave it to investors to find it. Nor would it be sufficient to
describe the document orally without delivering it.
INVESTOR RIGHTS
Investors have rights under the proposed framework including a new cooling
off right.
Investors in mutual funds and segregated funds will have a cooling-off
right that allows them to cancel their purchase. Investors will have two
business days to exercise this right by providing written notice to the dealer
or insurer that they intend to exercise their cooling-off right.
The investor will get back the lesser of:
- the amount of their original investment and
- the value of the fund on the day they exercise the cooling-off right
REGULATORY REQUIREMENTS
Once the proposed framework is finalized and implemented, content and
delivery of Fund Facts would be subject to the regulatory requirements
relevant to the product. For example, Fund Facts for mutual funds would fall
within the jurisdiction of the securities regulators while segregated funds
would fall within the jurisdiction of the insurance regulators.
JOINT FORUM OF FINANCIAL MARKET REGULATORS
The Joint Forum of Financial Market Regulators (Joint Forum) consists of
representatives from
- Canadian Association of Pension Supervisory Authorities (CAPSA),
- Canadian Council of Insurance Regulators (CCIR) and
- Canadian Securities Administrators (CSA).
The goal of the Joint Forum is to continuously improve the financial
services regulatory system through greater harmonization, simplification and
co-ordination of regulatory activities.